Jul 28 2007
Stock market falling like lead in hydrogen
I’m only annotating two charts today because it takes way too much time to annotate the charts of 4 indices, 1 ETF, and 1 mutual fund.
Prior support at 1490 became resistance today when the S&P 500 printed an intraday high of 1488.53. The S&P 500 closed at 1458.95 which is below the February high of 1461.57. Since resistance and support levels are fuzzy, I consider the S&P 500 to have closed AT support rather than BELOW it. The S&P 500 may bounce next week, but getting over 1490 will be a challenge. Do not buy until a bounce off of 1460 is confirmed; there is a lot of downside if the 1460 level fails to act as support. The bears are solidly in control and this is no time to try to be a hero and pick the bottom. Wait for a bounce.
Although the index seems to be oversold on a daily basis, it is not oversold on a weekly basis. In fact, the S&P 500 has a long way to fall if it falls. Here is a 3-year chart of the S&P 500 with each candlestick representing one week.
Without any regard to the US economy and just purely by reading this chart, it is not hard to see that the current run starting in the summer of 2006 is probably unsustainable. If the S&P 500 pulled back to the green line, it would be considered to be perfectly normal. The stock market may not be in a bubble like it was in 2000, but stocks are not cheap either. If you are buying at these prices, you are a fool and you are hoping you can find an even bigger fool to sell it to at a higher price later on. Foolishness is relative.
It is possible that a bump and run reversal is forming whereby even the green trendline is broken after the purple trendline is broken. Rarely does a stock or index fall through the purple trendline without also falling through the green trendline soon after. Given the recent deterioration of the US economy, such an outcome seems plausible. If the US slips into a recession, you can kiss the green trendline goodbye.
If the S&P 500 can manage to bounce off the purple trendline one more time, then I believe it has a fairly good chance blowing past the 1550-1555 resistance level. However, such a bounce would depend on the health of the US economy.
[...] looks like a got kinda lucky with a few of my calls. Last Friday, I said not to buy until a bounce off of 1460 is confirmed and that getting over 1490 will be [...]